DBRS Downgrades General Motors to D

DBRS has today downgraded the ratings of General Motors Corporation (GM or the Company), including GM’s Issuer Rating to D from C.

The ratings action follows the Company’s filing for Chapter 11 bankruptcy protection in the United States. With respect to GM’s Secured Bank Facilities, the rating remains at CC (low) – Under Review with Negative Implications. While these facilities are included in the bankruptcy filing, DBRS believes that there is still a chance that full payment will be made in the near term, at which point the rating would be discontinued.

DBRS notes that GM has indicated that General Motors of Canada Limited (GM Canada) does not intend to file for protection in Canada under the Companies’ Creditors Arrangement Act (CCAA). GM Canada’s short-term and long-term ratings remain at R-5 and C, respectively. However, given the uncertainty associated with U.S. bankruptcy proceedings, both GM Canada ratings remain Under Review with Negative Implications until the resolution of the U.S. bankruptcy process.

GM’s announcement comes in accordance with today’s deadline imposed by the Obama administration by which the Company was to complete revised restructuring plans that would establish its viability going forward and thereby qualify for further funding assistance from the U.S. government. To this end, GM had been actively involved in negotiations with its various stakeholders, including the United Auto Workers (the UAW), the Canadian Auto Workers (the CAW) as well as its unsecured creditors. DBRS notes that the Company has been able to reach new agreements with both the UAW and the CAW. GM has also reached an agreement, pending due diligence and final agreement negotiations, with respect to the financial and legal separation of its European subsidiaries under Adam Opel GmbH (Opel). The assets are being transferred into a trust in advance of a possible sale to Magna International Inc. and Sberbank (Russia’s largest savings bank). GM is also making progress in its divestiture of its Hummer brand, whose buyer remains undisclosed. Finally, the Company also increased its offer to unsecured bondholders, offering them 10% of the reorganized company in addition to warrants enabling the purchase of an additional 15%. GM’s sweetened offer to the bondholders has been approved by approximately 54% of these creditors.

The Company will receive slightly in excess of $30 billion in funding from the U.S. government, which will receive approximately 60.8% of the new GM’s stock. The Canadian government will put in $9.5 billion and as such obtain a stake of approximately 11.7%. The UAW VEBA will receive 17.5% of the reorganized GM, with warrants for an additional 2.5%.

It is hoped that the above agreements will facilitate an expedited bankruptcy process with respect to GM. The Company is roughly following Chrysler’s path, with the 363 process being applied to sell the Company’s optimal assets to a new reorganized company under bankruptcy court protection. DBRS notes that the bankruptcy of Chrysler LLC (Chrysler) has been progressing rapidly; with indications suggesting that Chrysler could emerge from bankruptcy protection in as little as 60 days. However, DBRS notes that GM’s operations and stakeholders are more extensive and diverse than Chrysler’s. As such, an expedited bankruptcy of GM could prove more challenging.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The applicable methodology is Rating Automotive, which can be found on our web site under Methodologies.

This is a Corporate (Autos and Auto Parts) rating.